Its the Principle Of The Thing…


New York, NY – An article published in the Money & Investing Section of this morning’s Wall Street Journal titled Assessing U.K. Watchdog discusses the growing debate over whether the often praised “principles based” approach adopted by the Financial Services Authority is better than the “rules based” approach adopted by the Securities & Exchange Commission.

The first most obvious difference between the FSA and SEC is the fact that the FSA is based on a model of “self regulation” compared to the SEC’s role as the “cop” of the U.S. financial markets.  Consequently, the FSA is known to take a less intrusive approach to regulation, resolving many of its cases through negotiation and compromise.

This difference is reflected in a number of interesting statistics, including the number of staffers at both regulators, and the number of enforcement cases that have been brought by the two organizations.  For example, the total number of regulatory staff per million of population in the U.S. is approximately 103 compared to 52 in the UK.

The number of public actions taken by the SEC and other U.S. securities regulators on an annual basis between 2002 and 2004 was 3,624, generating $5.29 billion in total sanctions.  This compares to 72 annual public actions taken by the FSA during the same period, leading to $27 million in sanctions.

The stark differences between these figures reflects, to a large extent, the different purposes of the two regulatory bodies.  One of the SEC’s mandates is to protect the individual investor, whereas one of the major purposes of the FSA is to make the UK an attractive place to do business.

It is interesting to note that a number of UK politicians have bemoaned the “extremely feeble” approach taken by the FSA in various enforcement cases.  On the other hand, countless conservative US politicians and business people have seen the principles based approach taken by the UK regulator as a potential model for the SEC.

The team at Integrity Research Associates is highly doubtful that either the US investor, or the ruling Democratic party, would be in favor of a move to a less protective “principles based” regulatory regime.

In fact, Democratic Congressman Barney Frank and the Financial Services Committee recently called SEC Chairman Christopher Cox and the other SEC Commisioners to task for their lack of action on behalf of the individual investor.

Nonetheless, it is not surprising that some in the US would look upon the FSA’s “principles based” model with favor, whereas the SEC’s more structured “rules based” approach would be attractive to some in the UK.  After all, the grass is always greener on the other side of the pond.


About Author

Leave A Reply